We are entering a "Golden Period" for fixed income investing

[Free bird]

Subject to change now we’re back in bailout mode.

 

[pb4uski]

Ended up doing it. Sold 3 different callable agency bonds yielding 4.4%, 4.7% and 5.0% for total proceeds of around $200k and then bought 2 $100k non-callable CDs yielding 5.35% and 5.3%. Less call risk and better yield... gotta love it when market dislocations result in bargains.

What is the duration of the CD?

If inflation keeps increasing, CD rates my just keep increasing as well.

The terms of the new buys were dictated by where my quarterly ladder needed filling after the aformentioned sales. The 5.35% is Dec 2023 and the 5.3% is Mar 2025.

CDs have not exceeded inflation for a very long time, even though they should at least equal inflation in theory so I wouldn't get my hopes up on that. I expect that CD rates are close to peaking but hopefully will rise a bit more and then stabilize for some time.

 

[Spock]

Inflation has dropped each of the last 8 months I think. It hasn’t been increasing since mid 2022.

Symantics. Inflation is similar to the old "joke":

A cop stops a man for running a stop sign and the subject gives the cop a lot of grief explaining that he did stop.
After several minutes, the cop explained to the gentleman that he didn't stop, he just slowed down a little.
The gentleman said 'Stop or slow down, what's the difference?'.
The cop pulled the guy out of the car and hit him with a nightstick for about a minute and then said, 'Would you like for me to stop or just slow down?'

While rate of inflation may not be accelerating, prices are still going up due to inflation. The pain at the grocery store is still increasing.

 

[Montecfo]

Symantics. Inflation is similar to the old "joke":


While rate of inflation may not be accelerating, prices are still going up due to inflation. The pain at the grocery store is still increasing.

Prices are expected to rise. This is the normal case. The issue is the rate of rise. That the rate of rise is reduced is exactly the effect the Fed desires and what the economy needs.

 

[pb4uski]

Symantics. Inflation is similar to the old "joke":


While rate of inflation may not be accelerating, prices are still going up due to inflation. The pain at the grocery store is still increasing.

And that may be good in a strange way. The pain at the grocery store keeps inflation front of mind for constituents and maintains political support for the Fed to continue its focus on beating down inflation, which IMO is in the long-term a bigger threat to society than a mild recession.

 

[copyright1997reloaded]

Prices are expected to rise. This is the normal case. The issue is the rate of rise. That the rate of rise is reduced is exactly the effect the Fed desires and what the economy needs.

QT is done. I can't find the source, but I read yesterday that the new [-]bail out[/-] backstop facilities will result in over half of the QT done being restored to the Fed's balance sheet.

It is the money supply expansion that will eventually end up as higher prices. The question isn't if, it is when.

Early last year I predicted here on ER.org that something would cause the Fed to stop raising rates before their inflation target was reached. I was off on the timing, as I thought it would occur prior to the election, but here we are. They may do the 25 basis point raise to save face, but the more important aspect - cleaning up their books via QT is (in my estimation) done.

Here is my (worth what it is being paid for prediction): We will see rates fall as QE gets reimplemented (under a new name to protect the guilty), inflation may fall further in the short run (credit crisis will impact economic activity), but in the longer run inflation will resurge.

At this point my 5-6% position in precious metals is all of a sudden looking way too small.

 

[Car-Guy]

I expect that CD rates are close to peaking but hopefully will rise a bit more and then stabilize for some time.

I think (hope) that is correct.

 

[Gumby]

...
While rate of inflation may not be accelerating, prices are still going up due to inflation. The pain at the grocery store is still increasing.

The reported year over year inflation tells you ONLY the level of prices now versus the level of prices one year prior. It does NOT tell you what prices are doing now nor what they will do in the near future. Thus, the recently reported inflation rate of 6.0% tells you only that the CPI in February 2023 (300.84) was 6% higher than in February 2022 (283.716). It does not tell you we HAVE inflation, only that we HAD inflation.

If prices stayed exactly where they are today (ie - CPI stays at 300.84 for March), the next reported year over year inflation rate would be 4.64% (300.84/287.504). If prices stayed the same in April, the reported inflation rate would be 4.06% (300.84/289.109). If prices stayed the same in May, the reported inflation rate would be 2.9%. (300.84/296.311). And if prices stayed the same in June, the inflation rate would be 1.54% (300.84/296.276)

So, you could have prices stay exactly the same from the end of February 2023 through the end of June 2023 (in other words, no price change = NO inflation) but the inflation report would still show positive for every one of those months.

 

[Spock]

The reported year over year inflation tells you ONLY the level of prices now versus the level of prices one year prior. It does NOT tell you what prices are doing now nor what they will do in the near future. Thus, the recently reported inflation rate of 6.0% tells you only that the CPI in February 2023 (300.84) was 6% higher than in February 2022 (283.716). It does not tell you we HAVE inflation, only that we HAD inflation.

If prices stayed exactly where they are today (ie - CPI stays at 300.84 for March), the next reported year over year inflation rate would be 4.64% (300.84/287.504). If prices stayed the same in April, the reported inflation rate would be 4.06% (300.84/289.109. If prices stayed the same in May, the reported inflation rate would be 2.9%. (300.84/296.311). And if prices stayed the same in June, the inflation rate would be 1.54% (300.84/296.276)

So, you could have prices stay exactly the same from the end of February 2023 through the end of June 2023 (in other words, no price change = NO inflation) but the inflation report would still show positive for every one of those months.

CPI is a manipulated joke. I go by the price I pay for the same groceries each week and what my other "must buy" items (utilities, insurance, property taxes) are doing. Yesterday I went to my favorite restaurant for the last time. The bacon cheeseburger that was $12.95 last month is $14.95 this month. They no longer bother to laminate the menus.

 

[Gumby]

Sadly, Spock's cheeseburger prices are not how they adjust the COLAs for my social security and pension.

 

[aja8888]

On another note, I meet with friends almost daily at a neighborhood Burger King in the morning. BK always has poster size paper (4' x 6') product advertising on the large windows of the store. The new posters have no prices for the advertised food items like the old ones did.

 

[11522914]

QT is done. I can't find the source, but I read yesterday that the new [-]bail out[/-] backstop facilities will result in over half of the QT done being restored to the Fed's balance sheet.

It is the money supply expansion that will eventually end up as higher prices. The question isn't if, it is when.

Early last year I predicted here on ER.org that something would cause the Fed to stop raising rates before their inflation target was reached. I was off on the timing, as I thought it would occur prior to the election, but here we are. They may do the 25 basis point raise to save face, but the more important aspect - cleaning up their books via QT is (in my estimation) done.

Here is my (worth what it is being paid for prediction): We will see rates fall as QE gets reimplemented (under a new name to protect the guilty), inflation may fall further in the short run (credit crisis will impact economic activity), but in the longer run inflation will resurge.

At this point my 5-6% position in precious metals is all of a sudden looking way too small.

QT has not changed and is proceeding along as originally planned. This is not new QE. This article explains exactly what is going on with the Bank Term Funding Program (BTFP) and "other credit extensions". https://wolfstreet.com/2023/03/16/f...on-to-fdic-but-qt-related-roll-off-continued/

The Fed’s balance sheet through Wednesday, released today, shows to what extent the Fed has provided emergency loans at around 4.75% interest and against collateral to US banks; and how much it loaned to the FDIC which is tasked with bailing out all depositors at Silicon Valley Bank and at Signature Bank, which collapsed last Friday and over the weekend.

At the same time, it shows that the QT-related roll-off of Treasury securities and MBS continued.

 

[lawman]

I've been off the grid for about 8 days and have heard little news except that more banks have gone belly up and people are piling into cash. I am selling all my Schwab Money Market (SWVXX)..
Prudent decision or irrational fear

 

[pb4uski]

^^^ I hope that you are kidding, but on the off chance that you are not, irrational fear.

 

[lawman]

^^^ I hope that you are kidding, but on the off chance that you are not, irrational fear.

Not kidding. What happens if outflows swamp inflows?

https://i.redd.it/v3vm3gcn5zna1.jpg

 

[aja8888]

QT has not changed and is proceeding along as originally planned. This is not new QE. This article explains exactly what is going on with the Bank Term Funding Program (BTFP) and "other credit extensions". https://wolfstreet.com/2023/03/16/f...on-to-fdic-but-qt-related-roll-off-continued/

The Fed’s balance sheet through Wednesday, released today, shows to what extent the Fed has provided emergency loans at around 4.75% interest and against collateral to US banks; and how much it loaned to the FDIC which is tasked with bailing out all depositors at Silicon Valley Bank and at Signature Bank, which collapsed last Friday and over the weekend.

At the same time, it shows that the QT-related roll-off of Treasury securities and MBS continued.

+1 QT is not dead.

 

[11522914]

Not kidding. What happens if outflows swamp inflows?

https://i.redd.it/v3vm3gcn5zna1.jpg

Their daily liquid assets as of 031623 was 38.55%. So if you believe there is going to be a run of over 44 Billion you should be concerned I guess. But that appears highly unlikely.

That being said, I moved the majority of the SWVXX into 1 to 4 month CDs because with this craziness it appears I'll make more money buying short term CDs versus keeping it in the MM. Plus CDs are FDIC insured.

 

[lordjust]

Not kidding. What happens if outflows swamp inflows?

https://i.redd.it/v3vm3gcn5zna1.jpg

You are worried about maintaining your money in the MM as opposed to a bank account? I am leaving mine in the MM so ....

 

[lawman]

Their daily liquid assets as of 031623 was 38.55%. So if you believe there is going to be a run of over 44 Billion you should be concerned I guess. But that appears highly unlikely.

That being said, I moved the majority of the SWVXX into 1 to 4 month CDs because with this craziness it appears I'll make more money buying short term CDs versus keeping it in the MM. Plus CDs are FDIC insured.

What banks? Did you research them? Schwab has several short term C.D.'s from banks I've never heard of..I would hope that Schwab would only sell from sound banks..As far as FDIC goes wouldn't the guarantee only apply to Schwab? I don't know if Schwab has a legal obligation to make me whole should the insurance pay off on my C.D.

 

[youbet]

The reported year over year inflation tells you ONLY the level of prices now versus the level of prices one year prior. It does NOT tell you what prices are doing now nor what they will do in the near future. Thus, the recently reported inflation rate of 6.0% tells you only that the CPI in February 2023 (300.84) was 6% higher than in February 2022 (283.716). It does not tell you we HAVE inflation, only that we HAD inflation.

If prices stayed exactly where they are today (ie - CPI stays at 300.84 for March), the next reported year over year inflation rate would be 4.64% (300.84/287.504). If prices stayed the same in April, the reported inflation rate would be 4.06% (300.84/289.109. If prices stayed the same in May, the reported inflation rate would be 2.9%. (300.84/296.311). And if prices stayed the same in June, the inflation rate would be 1.54% (300.84/296.276)

So, you could have prices stay exactly the same from the end of February 2023 through the end of June 2023 (in other words, no price change = NO inflation) but the inflation report would still show positive for every one of those months.

Nicely expressed Gumby!

 

[lawman]

You are worried about maintaining your money in the MM as opposed to a bank account? I am leaving mine in the MM so ....

Only I can take money from my bank account...Not so for MM funds..

 

[lordjust]

What banks? Did you research them? Schwab has several short term C.D.'s from banks I've never heard of..I would hope that Schwab would only sell from sound banks..As far as FDIC goes wouldn't the guarantee only apply to Schwab? I don't know if Schwab has a legal obligation to make me whole should the insurance pay off on my C.D.

my understanding is that all CDs are insured so it doesnt matter the bank/credit union. but there is a discussion further back in this thread on how to look up the banks and their ratings.

 

[youbet]

What banks? Did you research them? Schwab has several short term C.D.'s from banks I've never heard of..I would hope that Schwab would only sell from sound banks..As far as FDIC goes wouldn't the guarantee only apply to Schwab? I don't know if Schwab has a legal obligation to make me whole should the insurance pay off on my C.D.

No, Schwab does not own the CD, you do.

 

[11522914]

What banks? Did you research them? Schwab has several short term C.D.'s from banks I've never heard of..I would hope that Schwab would only sell from sound banks..As far as FDIC goes wouldn't the guarantee only apply to Schwab? I don't know if Schwab has a legal obligation to make me whole should the insurance pay off on my C.D.

Per Schwab's website:
All CDs in CD OneSource are offered by FDIC-insured banks. The Federal Deposit Insurance Corporation insures deposits at FDIC-insured banks. The basic insurance amount is $250,0001 per depositor per insured bank. Each CD you purchase from a different institution is FDIC-insured in aggregate based on ownership type at that bank. For example, if you own two CDs, $250,000 from one bank and $250,000 from a second bank, and you have no other deposits at those banks, you’re covered for $500,000.

I do not research banks as long as my CD is FDIC insured and I stay within the limits. And yes I bought some CDs from some totally unknown bank to me. Not a problem.

So do you believe your cash sitting in a brokerage or bank account is safer than a FDIC insured CD while you're earning maybe 0.45%?

 

[disneysteve]

Prices are expected to rise. This is the normal case. The issue is the rate of rise. That the rate of rise is reduced is exactly the effect the Fed desires and what the economy needs.

Exactly. When we talk about inflation, what we really mean is the rate of inflation. There is virtually always inflation. Prices rise over time. The issue is how quickly they rise.


That annualized rate has been dropping for the past 8 months. That's a good thing and is exactly what the Fed actions are supposed to accomplish, and it's working. None of that means things will get cheaper; it just means they won't get more expensive as quickly. I'd much rather see a 6% inflation rate than a 9% rate. Of course, 3% would be even better but we're not there yet.